Is overpaying your mortgage a good idea?

When buying your first house, you’ll hear a lot of different advice on what you should do to make the process as smooth as possible.

One of the most common things you’ll hear is overpaying your mortgage. While this will mean your mortgage payments will end quicker, it doesn’t necessarily mean it’s the right choice for you.

So, how do you know whether it’s better to overpay your mortgage or focus on building up your savings instead? Today, we’ll run through the pros and cons so you can decide which option is best for you.

What does overpaying a mortgage mean?

Overpaying a mortgage essentially means that you pay more than what is borrowed for your monthly repayments. 

You can do this in a one-off lump sum, which we wouldn’t recommend unless you're financially comfortable, or through regular extra payments. If you’ve already got a mortgage and you’ve recently received an increase in salary or inheritance money, then this is an option you may consider. 

After all, a mortgage is one of the biggest drains on our bank accounts, so it makes sense to get it paid off sooner rather than later. A lot of people are already going down this route.

In fact, MoneySavingExpert notes that borrowers paid billions of extra pounds in 2024 to cut interest and shorten their mortgage terms.

How can you overpay your mortgage?

Overpaying your mortgage can be done in two ways, both of which we briefly touched on before.

• Paying more toward your mortgage monthly than what's owed

• Making a large one-time payment to reduce your overall balance

  
  

Overpaying your mortgage by a little each month is more feasible for the average homeowner than making a single large payment. It means you can budget each month and have the flexibility to skip a month if you’re low on funds.

Most lenders let you control overpayments online or via their app. If you want to make extra monthly payments, you can set up a direct debit to make it easier to manage. 

When overpaying your mortgage, make sure you ask the lender to apply it to your overall balance, rather than reducing future payments. That way, you’ll save more interest than just a few days’ worth of repayments. 

Overpayments: fixed, tracker and SVR deals

Different mortgages come with different rules and penalties. Depending on what type of mortgage you have, you’ll only be able to overpay by a certain amount annually. 

Most fixed-rate mortgages limit overpayments to around 10–20% of the balance per year. However, tracker and standard variable rate (SVR) mortgages usually have no overpayment cap.

Of course, these guidelines can differ depending on which bank you're with. Some lenders may even charge you for overpaying, which is known as early repayment charges (ERCs), so it’s best to check your mortgage terms before you make any decisions. 

Effects on your payments

You don’t need a lot of spare cash to start overpaying on your mortgage. An extra £50 or £100 a month on a typical 25‑year loan can go a long way. 

As we’ve already said, overpayments also lower your loan‑to‑value (LTV), which could help you qualify for better rates when you want to remortgage. 

You can use Money Saving Expert’s mortgage overpayment calculator to find out how much you could save on your mortgage. 

Is it worth overpaying your mortgage?

Whether overpaying your mortgage is beneficial for you comes down to a lot of things: your interest rate, your savings options, your lender’s rules, and how much breathing room you need for other expenses. 

1. You can save on interest

Because mortgage interest is charged on what you still owe, reducing the balance often means you pay less interest overall.

This will significantly reduce your overall mortgage payment, helping you save money in the long run. 

2. You might improve your loan-to-value for a future deal

Overpayments can reduce your loan-to-value (LTV) as you’ll be paying down more capital, increasing your equity. 

That means you’ll have access to more competitive rates in the future.

3. You could shorten your mortgage term

Paying off your mortgage faster means that you’ll get out of it quicker, which is perfect if you’re looking to relocate.

That can take months or even years off the mortgage, depending on your rate and term. 

How do I choose between overpaying my mortgage or putting the money into savings?

If your mortgage rate is around the same as, or higher than, the savings rate you can get, then it makes sense to go down that route. 

While it’s good to have a savings account going for future goals and expenses, paying off your mortgage by more than what you owe every month can have quicker benefits. This is especially true if you have recently got a mortgage, since rates are higher than they’ve ever been. 

If you currently have an older mortgage rate that is quite cheap, then it could be more beneficial for you to start saving until your current mortgage ends. That way, you can use the money to overpay on your new mortgage.

Things to consider before overpaying your mortgage

If you’ve decided to overpay your mortgage, there are a few things you need to consider. While overpaying is all well and good, there are a few circumstances where it’s not the best idea. 

Do you have any debts left to pay off? 

If so, you should put any extra money toward paying off your debts before thinking about overpaying your mortgage. 

Debts can have a bad impact on your credit score, which means you’ll be hit with higher interest rates. Pay these off first, and you won’t have anything hanging over you.

Will you be hit with an Early Repayment Charge (ERC)?

As we said, some lenders actually issue penalties for overpayments on your mortgage. 

You should always check the overpayment limit and what will happen if you go over it. 

Do you have other money saved in case of an emergency?

Sometimes the unexpected happens, and we’re left with a sum to pay. 

Having a savings account that’s separate from your mortgage and other expenses will prevent you from having to borrow again. If you can’t juggle both, it may be better to re-evaluate what matters more: being financially comfortable or saving on your mortgage. 

Get expert mortgage advice with GMS mortgage brokers

Whether you’re a first-time homeowner or someone who’s weighing up different options moving forward into your next mortgage, we’re here for you. 

Our friendly and professional mortgage advisors in Liverpool will work with you to understand your personal needs and financial situation to find the perfect mortgage for you. 

It’s as simple as giving us a call! We’ll pair you with one of our mortgage experts for all the support you need on your home-buying journey.